* World stocks fall 0.3 percent
* Brent crude hits 3-1/2-yr high
* Dollar supported as U.S. 10-year yields break 3 percent
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* For a live blog on European stocks, type LIVE/ in an Eikon news window
By Alasdair Pal
LONDON, May 15 (Reuters) - World stocks fell on Tuesday as investors digested soft Chinese economic data and a lack of progress in U.S.-China trade talks, though oil companies were a bright spot as crude hit a three-and-a-half-year high.
MSCI's world equity index, which tracks shares in 47 countries, was down 0.3 percent.
Futures pointed to a lower open for U.S. equities, with S&P 500 e-minis down 0.2 percent.
European stocks snapped early losses, with the benchmark Stoxx 600 rising 0.2 percent and helped by oil stocks , that rose by nearly a percent.
The UK's FTSE 100 and Italy's FTSE MIB, both of which have high weightings to energy stocks, rose by 0.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.2 percent, after China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policymakers try to navigate debt risks and defuse a heated trade row with the United States.
Mixed messages in U.S.-China trade talks also weighed on sentiment for global investors.
The two countries are still "very far apart" on resolving trade frictions, U.S. ambassador to China Terry Branstad said on Tuesday as a second round of high-level talks was set to begin in Washington.
U.S. President Donald Trump drew ire from lawmakers after suggesting he would help Chinese firm ZTE Corp, that flouted U.S. sanctions on trade with Iran and North Korea, with intelligence officials also saying the decision threatens national security.
"Sino-U.S. trade negotiations have provided mixed signals, the White House promising conciliation (over ZTE) then indicating that some form of punishment is still in the cards," said Mike van Dulken, head of research at Accendo Markets.
Oil prices hit a 3-1/2-year high on Tuesday, supported by tight supply and planned U.S. sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East.
Brent crude futures, the international benchmark for oil prices, rose to as much as $79.22 per barrel, its highest level since November 2014.
"Oil prices are touching fresh multi-year highs as robust demand prospects coupled with a tense geopolitical backdrop make for a potent bullish cocktail," said Stephen Brennock, analyst at London brokers PVM Oil Associates.
In fixed income, the U.S. 10-year bond yield rose above the key level of 3 percent, sending borrowing costs higher in a number of other countries and supporting the dollar.
The 10-year yield was last trading at 3.0318 percent, just off levels not seen since January 2014.
In Europe, the benchmark German bond yield rose to 0.636 percent, its highest level in three weeks, with investors also taking note of hawkish commentary from Bank of France Governor Francois Villeroy de Galhau, who said the European Central Bank could soon give guidance on its first rate hike.
"We have this Galhau interview and he was very much pointing to rate hikes after the end of QE (quantitative easing)," said DZ Bank rates strategist Daniel Lenz, explaining the weakness in euro zone debt markets. "And we still have a high oil price and U.S. Treasury yields above 3 percent."
Against a basket of six major currencies, the dollar index gained 0.46 percent.
Reporting by Alasdair Pal; additional reporting by Dhara Ranasinghe and Christopher Johnson in London; Editing by Catherine Evans and Adrian Croft